Beware Brown's rosy picture

GORDON Brown kicked off his election campaign in the City by delivering a paean to his own skills as an economic manager.

The Chancellor has much to be proud of - including the courage to cut free both the Bank of England and interest rates from Treasury control. He confounds the forecasters on a regular basis by beating their growth forecasts.

In his Budget the Chancellor boasted of 50 successive quarters of growth. Brown trimmed his sails yesterday, noting instead that in each of the eight years Labour has been in power, the economy has expanded quarter by quarter. He describes this 'as the longest sustained period of growth for 300 years'.

But there is nothing magic about 1997. Britain's growth spurt began in 1992 when we were ejected from the Exchange Rate Mechanism.

Bank of England research shows that the era of low inflation also began in 1992 with the introduction of monetary targets by the Tories.

The success of Labour is not that it inspired an epoch-making change in Britain's business landscape, but that a Labour government demonstrated for the first time that it can be trusted with the economy.

In its second term, Labour has allowed its grip to slip. Expansion has been bought at a price, as the International Monetary Fund points out. The jump in house prices has outstripped incomes, credit has ballooned and Britain faces a pensions crisis.

There are signs that the relentless rise in taxes to finance public services is taking its toll. A Nationwide survey shows that in March consumers turned negative on prospects for the economy and are uncertain about their personal finances. This explains why the High Street is in such a perilous state.

Brown is in danger of losing his credibility on public finances. Public sector borrowing is rising and has consistently been higher than target. Brown's golden rule - that spending over the cycle should be only for investment - is barely met and even then with a little help from his friends at the Office for National Statistics.

The Chancellor is determined to keep cash flowing into the public services. This is in itself no bad thing if the resources are used efficiently. Brown has consistently failed to pass this test with the IMF and the OECD. The policy is being pursued despite the fact that according to the Institute of Fiscal Studies middle-income Britain is poorer than when Labour came to power.

The cost of pushing on with an unreformed spend on health and education will be post-election tax rises of £8bn to £12bn, depending on which experts' figures one takes. That will be needed simply to keep the public finances safe. No one should be lulled into complacency by Labour's repetition of a litany of economic success. Liquor wars

Liquor wars

FINALLY, 2005 looks as if it may produce a substantial bid for a British company. Pernod Ricard, with the assistance of US-based Fortune Brands, is closing in on Allied Domecq, the world's second largest drinks firm.

There is an irony to this. Not so long ago, Philip Bowman of Allied Domecq was seeing his company as the consolidator, talking of possible takeovers of drink firms including Bacardi and Brown-Forman.

Pernod was dismissed as not terribly interesting because no one in Northern Europe or North America has much taste for its core brands.

If a deal is to be done, the model will almost certainly be Seagram. The predators will have to split the spoils, including duplicated cognac brands Courvoisier and Martell, to make this work with competition watchdogs in Brussels and Washington.

There is work to be done with investors too. Pernod Ricard, with a dominant family shareholding and a combined chairman and chief executive in Patrick Ricard, does not meet modern management standards. Some shareholders may also be reluctant to take on French paper, if that proves to be the main currency of the offer when it is paid.

Last of all Pernod does not like paying top dollar, as we saw with Glenmorangie when it was outbid.

So taking out Allied Domecq is by no means a no-brainer.

Tesco power

FORGET the line-up of the major parties in the election. A poll by insolvency specialists Begbies Traynor found that the public believes Sir Terry Leahy's Tesco is the best-placed business to run the country.

And J Sainsbury? It ended up where you would expect it to be - trailing far behind.